The Canadian dollar rallied alongside its Antipodean counterparts overnight. USD/CAD slid to $1.2702 from $1.2749, and it is trading at the session low in Toronto.
Yesterday, Statistics Canada released November inflation data. The Consumer Price Index was higher than expected, rising 0.1% m/m in November. Nevertheless, Canadian inflation is tame, at just 1.0% y/y, and supports the Bank of Canada’s "low rates for longer," monetary policy outlook.
The U.S. Federal Open Market Committee (FOMC) meeting finished with traders and analysts concluding the Fed was a tad more dovish than expected. That’s because they tweaked the portion of the statement referring to Quantitative Easing. Instead of buying Treasury and Agency-backed securities from "at least at the current pace" the Fed will now purchase those securities "until further substantial progress has been made toward the Committee’s maximum employment and price stability goals." In a nutshell, the Fed extended QE indefinitely.
The news helped Asia equity indexes close with gains and also helped European equity indexes to rally. S&P 500 futures suggest Wall Street will open higher. The improved risk sentiment tone helped lift crude prices while gold got a lift from the perception of a dovish Fed.
Once again, GBP/USD is in the spotlight. Prices continued to climb and reached $1.3622 in early Toronto trading, thanks to upbeat Brexit news. The European Union and United Kingdom have reportedly agreed on a mechanism to satisfy the "level-playing field" concern, leaving fishing rights as the only sticking point. Fishing is supposedly more of a national pride issue rather than an economic one for the U.K., which suggests Britain may make some concessions, allowing for a Brexit deal.
The Bank of England left interest rates and monetary policy unchanged, as was widely expected. The central bank is awaiting the conclusion of Brexit before making any policy changes.
EUR/USD extended yesterday’s gains, rising to $1.2243 from a low in Asia of $1.2190. Broad-based "risk-on" sentiment fueled the gains. The final Eurozone inflation reading for November was unchanged at 0.3% m/m, as expected. The Swiss National Bank did not surprise anyone when it left interest rates unchanged at -0.75%.
AUDUSD rallied following better than expected employment data. Australia added 90,000 new jobs in November, well above predictions for a 50,000 increase. The unemployment rate dropped to 6.8% from 7.0%. The news lifted AUD/USD to $0.7638 from $0.7578. NZD/USD rallied as well, thanks to the improved risk sentiment.
Today’s U.S. economic reports include Weekly Jobless Claims and Philadelphia Fed Manufacturing Purchasing Managers Index.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
